The variable nature of most renewable energy generation technology has long been recognized as an opportunity for electricity storage on the grid. Because the amount of energy provided by a wind turbine or solar panel will vary as the wind blows (or does not) or as the sun shines (or does not), another source of power must always firm this variable capacity in order to provide a steady and predictable amount of electricity to the grid.
Electrochemical energy storage is well-suited to perform this function. An energy storage technology that can perform this function at a cost that is equal to or lower than the cost of a natural gas turbine (which is the technology that effectively provides most of this balancing today) will alter fundamentally the architecture of the grid and be tremendously profitable.
Since variable wind energy represents such an opportunity for electricity storage, the drama unfolding in Washington over the extension of the production tax credit (the “PTC”) is cause for concern. The PTC is presently scheduled to expire on December 31, 2013. Eligible wind energy projects put into service before that date will be entitled to a ten year tax credit, currently 2.2¢, for each kilowatt hour of electricity they produce. Projects put into service after that date will not be eligible for the credit. The PTC has been vital to the health of the wind industry, which has historically boomed when the credit has been in effect and busted during the three time periods that Congress allowed the PTC to expire and did not continuously renew it.
The wind energy industry faces some clear near term challenges. Partisan bickering in Washington has many betting that Congress will not succeed renewing the PTC before its scheduled expiration in December 2013. Already, orders for wind turbine deliveries in 2014 and later are drying up and several wind turbine manufacturers have announced layoffs. Record low natural gas prices provide another challenge, as power purchasers take advantage of those low prices by entering into short term contracts with natural gas-fired generators rather than into long term power purchase agreements, which are more suitable for wind power producers.
But the prospects for wind energy are far from bleak. While loss of the PTC would be a major setback, the PTC has itself been tremendously successful. By subsidizing the wind energy market for nearly 20 years, the PTC has allowed wind technology to mature from an arcane and somewhat exotic source of power to a technology that today, in good wind areas, can provide the lowest cost power of any available technology (about $0.03/kWh, according to a new report by NREL and Lawrence Berkeley National Laboratory). Improvements in wind technology have dropped the levelized costs of wind energy by between 24% and 39% in the last ten years alone and, perhaps more significantly, have increased the amount of land area in the U.S. that can support projects with 35%+ capacity facts by as much as 270%.
Natural gas-fired turbines may also not be quite the fearsome competitor that they appear. The record low natural gas prices in North America, which make gas-generated electricity appear so cheap and short term electricity supply contracts so attractive, are not sustainable, notwithstanding newly-discovered unconventional reserves.
The law of supply and demand is immutable. At near record low prices of $2.50 per 1,000 cubic feet, gas producers are already moving rigs out of “dry” gas production in order to pursue more profitable “wet” fuels, such as petroleum. According to WTRG Economics, the number of rigs currently drilling for gas in North America as of February 10, 2012 is 720, down from 906 this time last year. Year over year gas exploration is down 20.5%. With the American economy in slow but steady recovery, it is a good bet that natural gas prices will not be at record lows for long.
Long term, therefore, the outlook for wind energy is good—as is the outlook for the electricity storage technology necessary to balance wind’s inherently variable nature. As electricity costs begin to rise, power purchasers will find the long term, stable electricity prices that wind projects offer more attractive. As they do, attention will turn to how best to balance the variable nature of that electricity in an environment in which natural gas cannot be counted on to deliver a low cost, long term balancing solution.
A recent report by KEMA for the Copper Development Association estimates that over the next five years alone, the U.S. grid storage market will grow to between two and four gigawatts, a good part of that deployed to balance variable renewable energy.